13 July 2021

 

Seen from an economic justice perspective, the results of the recently concluded meeting of G20 Finance Ministers and Central Bank governors in Venice are a huge disappointment. The G20 through its finance leaders resoundingly echoed the OECD tax proposals, considered by many leaders of developing countries and CSOs as “false solutions.”

“The G20 did not address the fundamental flaws in the international tax architecture nor respond to the needs, rights, and interests of peoples of the Global South,” said Lidy Nacpil of the Asian Peoples Movement on Debt and Development (APMDD). 

 

“The disappointing outcome of this latest G20 finance leaders’ meeting is perhaps not surprising. It simply underscores the longstanding objection of civil society organizations to the persistent hijacking by rich countries of the agenda to transform global tax rules that have historically benefitted multinational corporations residing within their jurisdictions,”  Nacpil added.

In a Communique issued after their meeting concluded last July 10, G20 finance leaders noted that the “global outlook” has improved but that the recovery has “great divergence” across and within countries. The so-called “historic agreement” of the G20 finance leaders is built upon a mere endorsement of the Two-Pillar solution on tax issues proposed by the OECD but widely criticized by CSOs and thought leaders from Africa, Latin America, Asia, Europe, and other parts of the world. 

 

"We endorse the core elements of the two pillars on the profit reallocation of multinational enterprises and the global minimum tax as set out in the statement released by the G20/OECD Inclusive Framework on Base Erosion and Profit Shifting (BEPS)," read the Communique of the G20 Finance Ministers and Central Governors’ Meeting on July 10. 

 

The core elements described by the G20 finance deal refer to the OECD’s global tax proposals contained in the statement “A Two–Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy.” Released just last 1 July 2021, the lnclusive Framework on BEPS in turn had strongly championed the earlier tax deal of the G7. In June of this year, the G7 countries, the world’s elite, agreed on the following: 1) on Pillar One, a global reallocation of taxing rights residual, non-routine profits of the largest 100 multinational companies; and 2) on Pillar Two, a  global minimum corporate tax rate of 15%. This rate is markedly lower than both the global average corporate tax rate at 25% and recommendations by the UN High-Level Panel for Fiscal Accountability, Transparency, and Integrity (UN FACTI).

 

Intense criticisms by civil society organizations worldwide concern the prospective impacts of these proposals on tax revenues of countries in the Global South. 

 

“To force through such an unfair reform, giving the lion’s share of revenue to the largest OECD members when lower-income countries lose the greatest share of tax revenue to corporate tax abuse, is shocking,” Alex Cobham, chief executive of the Tax Justice Network, said in a statement on the OECD’s proposal expected to be adopted by the G20 Finance Ministers.

Cobham denounced the timing of the proposal as a strikingly low global minimum corporate tax rate is set to generate a paltry amount of additional revenues for developing countries struggling to finance essential public services, as revealed in The State of Tax Justice 2020 report.

 

The Global Alliance for Tax Justice (GATJ) also raised serious concerns on the “unequal” distribution of revenues from taxed profits under Pillar One. “Far from ensuring the taxing rights of developing countries, the ‘solution’ will limit the right to tax of source countries to a small proportion of MNCs’ profits and entrench taxing rights to headquarter countries over global profits,” GATJ’s statement released on July 5 read. According to Dereje Alemayehu, chair of GATJ, this signifies that the proposals “evidently do not address the fundamental problems of the current international tax architecture and ignore the developing countries’ interests.”

 

These concerns are shared by many civil society organizations from developing countries whose governments are now under strong pressures by the OECD and G20 to endorse the proposals. 

 

Civil society organizations in Africa issued a statement decrying the proposals for reflecting the rich countries’ “self-interest,” given the history of tax abuses, environmental degradation, and labor rights violations by multinational corporations in the region. The statement criticized the skewed allocation of revenues from Pillar Two to countries where multinationals are headquartered. “Conveniently, these tend to be the finance capitals of the Global North which constitute most of the G7. The developing countries from which these profits are often extracted in the first place, and which are the most in need of fiscal resources to finance development and public services, are left by the wayside,” the statement added.

 

In Asia, the growing challenges in taxing digital services are expected to be compounded by the proposal to eliminate domestically-determined Digital Services Taxes (DSTs). A statement signed by civil society organizations from the Philippines called attention to the failure of the two-pillar solution to address these challenges since the proposed 15% global minimum corporate tax rate is “ridiculously low and utterly meaningless with respect to the billions of dollars earned by digital companies from developing and even some developed countries since these MNCs do not have nor need physical presence therein.”

 

Denouncing the “inequitable” and “undemocratic” process led by the G7 and the OECD, APMDD’s Lidy Nacpil issued a strong statement that “[s]etting new tax rules for the rest of the world must not be an initiative orchestrated by the richest 10% of the global population, whose multinational corporations have amassed billions in profit at the expense of natural resources and labor in developing countries.” For a global tax agreement that will adequately address the needs of peoples in Asia, APMDD firmly rejects the “false solutions'' proposed by the G7 and the OECD/G20, demanding governments in Asia to “fight for a just agreement through a UN Tax Convention and for an inclusive, democratic and transparent UN Tax Body.”

 

Developing countries whose governments are only participating in the OECD Inclusive Framework on the level of technical expertise are reportedly facing mounting pressure from OECD countries and similar informal groups to accept and ratify the G20/OECD proposals in their domestic legislation. 

 

In the lead-up to upcoming global meetings such as the UN General Assembly in September and the G20 Summit in October this year, CSOs and other tax justice advocates from different parts of the world are expected to continue rejecting the ‘Two-Pillar solution’, advancing a transformative tax justice agenda,  and clamoring for genuine solutions to address the multiple crises that continues to plague the world, deepening and widening inequalities. 

 

Authenticated by:

Lidy Nacpil

Coordinator

Asian Peoples’ Movement on Debt and Development (APMDD)

 

Contact persons: 

Becky Lozada

Communications , Development Finance Team

Asian Peoples’ Movement on Debt and Development (APMDD)
Email
Mobile 63 9175362638